The national surge in home prices seems not to have scared off would-be buyers, the National Association of Realtors reports.
The median price in sales of existing single-family homes rose 5.2% last year, to $130,600, according to the group's survey of metro areas. The fourth-quarter rise was nearly as steep-4.9% from year-earlier quarter, to $131,000.
Nevertheless, sales of such homes jumped 13.5% in 1998, to 4.79 million.
Fred Flick, vice president of economic research for the Realtors association, said rising home prices did not hurt the industry because people can afford more expensive homes.
"We have a very good demographic of homebuyers in the late 1990s, and it will stay good into the next decade," he said.
Last year's price rise was bigger than the Realtors had expected, Mr. Flick said. "Income growth has been rapid, unemployment is low, and interest rates are really low, because inflation is low."
The association predicts a slight decline in sales this year, but Mr. Flick said it is hard to say what rates will do.
"The manufacturing sector is slipping a bit, which suggests the Fed should push interest rates down," he said. "But other sectors, like housing, are going gangbusters."
The Fed does not want to raise rates "and throw us into a recession," Mr. Flick observed. However, he noted, "there is a concern with certain sectors doing better.
"I'm sure the Fed is watching the housing market very closely."
Price growth in sales of existing homes outpaced the 1.9% inflation rate last year in 76% of the 132 metro areas surveyed. Double-digit growth was registered in 16; prices declined in 15, but by only 1% to 5%.
"Property should make a return over inflation, because you have to invest in it and maintain it, and it has a small price risk," Mr. Flick said. "I am not ashamed of these numbers."
Prices rose the fastest in the Midwest last year. The fourth-quarter median price, $114,400, was 7.1% higher than a year earlier.
"Prices have had a lot more room to move in the Midwest," Mr. Flick said. The region's industries "have been retooled, diversified, and made more high-tech," he said.
"It's not the Silicon Valley, but they've made a move from rough industries like steel plants and farming."
Two midwestern markets-East Lansing, Mich., and Davenport/Moline/Rock Island, Ill.-led the nation's metro areas in fourth-quarter price gains. The rise from a year earlier was 15.5% in East Lansing and 13.3% in Davenport/Moline/Rock Island.
Double-digit increases were also registered in six other midwestern metro areas: the Kalamazoo and the Saginaw/Bay City/Midland areas in Michigan; Toledo; Waterloo/Cedar Falls in Iowa; Lincoln, Neb.; and Detroit.